Key Performance Indicators (KPI): Definition
A Key Performance Indicator (KPI) is defined as a measurable value that effectively demonstrates how efficiently an organization is achieving its key business objectives. These indicators are business metrics used by corporate executives and other managers to track and analyze factors that are considered crucial to the success of an organization.
KPIs differ from organization to organization basis and is mostly based on business priorities. For example, one of the key performance indicators or public company will most likely be it’s share price, while the KPI for a privately owned business or a startup could be the new customers acquired.
Even the direct business competitors are likely to monitor a different set of KPIs that are customized based on the individual business strategies and management outlook. The KPI may even vary within the same organization depending on the people working in the organization and their associated role they play or the position they hold.
For example, the CEO of an organization may hold profitability as the most important measure for the organization’s success, however for the president of sales of the organization may view the ratio of success sales pitches vs lost clients as the highest priority KPI.
To add to this, different businesses and their units and the aligned departments are typically measured against their own KPIs which results in a mix of KPIs throughout the organization- some at the corporate level and some at specific departmental level.
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Key Performance Indicator (KPI) Example
Let’s assume that you work in law enforcement department and you have the role of monitoring the speed of the drivers on the highway. You have been assigned a task to calculate the average speed of the drivers from the month of July 2018 to November 2018, as many accidents happened during this time the previous year.
In this case, it will be helpful for you to know the average speed of drivers from the months except July to November. Say if the average speed of driver’s for other months is 50 miles an hour, then you now need to calculate the average speed for the months mentioned in this example.
Assuming that the average speed of the drivers for July to November is 60 miles per hour, obviously, the drivers ride at 10 miles per hour speed higher than any of the months. Here your KPI is clearly defined:
- To calculate the average speed of the drivers from July 2018 to November 2018.
- To know the average speed of the drivers for all other months for the year 2018.
- To know the average speed of the drivers from July 2018 to November 2017.
- To know the average speed of the drivers for all other months for the year 2018.
Let us take another example here. Let us consider you are the owner of a local pub. In establishing average pints per person per visit as your key performance indicator you noticed that you averaged 1.2 pints per person per visit as compared to the average of 1.4 pints per person per visit and last month’s average of 1.3 pints per person per visit.
In this particular example setting up specific KPI will help you find the answers to the questions that you might previously unaware of or might have otherwise missed.
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Key Performance Indicators (KPI) Metrics
The first and foremost any business owner or the CEO of an organization would ask you directly is, “how do you think you will measure my organization’s performance”?
Well, the only way not to do it is to follow your gut, however, running a successful business requires a thorough understanding of the analytics and an organized set of roles and responsibility for all the related departments that are associated. And all of this cannot be done without tracking the relevant key performance indicators metrics.
Business metrics are also called Key Performance Indicators display a measurable value that determines the success of an organization in achieving its goals. KPI metrics help determine if the organization or the business has achieved its goal in the designated time frame.
There are hundreds of KPI metrics but there is no point measuring all of them. Depending on your business goals, you should track your business metrics to understand in real-time how your business is performing. Tracking irrelevant metrics will distract you from focusing on the right things that truly matter. Following are the most relevant KPI metrics that any business or organization should aim at measuring:
1. Net Promoter Score (NPS): Net Promoter Score is a powerful metrics not only to measure your business and customer loyalty but also to measure your employee satisfaction levels. In the latter case, it is known as the employee Net Promoter Score.
How to measure:
This metric is measured on a 10 point scale which is determined by asking one powerful question:
“Considering your complete experience with our organization, on a scale for 0-10 how likely are you to recommend this organization to your family and friends”
According to the Net Promoter Score calculation, there are three levels of customer or employee satisfaction:
- Promoters (score 9-10): These are extremely loyal customers or employees who will certainly spread a positive word of mouth and will refer their family and friend to your business or organization
- Passives (score 7-8): These are satisfied but not so enthusiastic customers or employees who will move on quickly if they find a better option.
- Detractors (score 0-6): These are disappointed customers or employees who are bound to spread a negative word of mouth or information about your company or organization that can easily damage your brand’s reputation.
Once you have gathered the relevant data and evaluated the results, it gives you an insight on how to improve your products or employee engagement or employee satisfaction.
2. Product Development and Sales Revenue
This is another important metrics as it tells a lot of things about your organization or business. Month-over-month sales and product development show whether the employees are on target with the product development and also if the customers are interested in buying your products or not and whether all your marketing efforts are being channelized in the right direction if you are still in the competition and much more.
When evaluating this metric and setting goals, it is important to understand that this metric is affected by multiple factors like changes in the market, previous marketing campaigns, employee engagement, competitive actions etc.
3. Employee Attrition
This is one of the key KPI metric for any organization or business. Employers generally consider attrition as the loss of a valuable workforce. As an employee leaves the organization, he/she takes with them a refined skill set that they developed during their tenure in the organization. Not to mention the cost of attrition is extremely high and can affect the financial sheets of an organization.
When an employee is hired by an organization the related cost of onboarding, training, equipment, benefits, and incentives are also calculated. Additional cost includes staff time for the recruiters, participating hiring managers etc. Therefore, it becomes one of the key metrics.
4. Employee Happiness
It’s a simple math, satisfied employees= productive employees. According a new research conducted employees are 12% more effective at work if they are happy. Keeping the satisfaction level high leads to a long-term commitment to the team and to the organization. That is why it is important to regularly check whether your employees are happy and are excited to be a part of the organization.
5. Meeting Goals and Milestones
Every business has goals and milestones to give you a quick overview of your company’s activities, target setting, the time allotted to achieve that target etc. A timely check on the number of targets assigned and the goal setting for your employees will help you and your organization achieve milestones.
Learn more: employee Net Promoter Score- Definition, Question, Formula, Calculation, and Benchmark
Key Performance Indicators (KPI) Report
A KPI report is a strategic tackling method, that will help your organization define and track the exact number you want to achieve whether in terms of employee retention, Net Promoter Score, Employee Engagement and Satisfaction, business revenue, financial growth etc.
For example, you want to track your employee attrition rate by region (locations at which you have your offices), you would need to know the attrition rates for the previous years, the effective cost of recruitment and onboarding etc. Collect all the necessary information related to the activities and then use this data to analyze and compare the attrition rate from the previous years.
This is just one of the examples, the dashboard can have any number of attributes that you decide needs to be a part of the KPI metrics. Revenue is a very important attribute and is usually a major KPI for the marketing and the sales team. The targets are decided at the beginning of the financial year or even before. Imagine how easy it would be to track the progress through the year!
Here is an example of how a KPI report looks:
In this report, you can see the different KPI metrics. Organizations can keep themselves organized at any given point in time and touch bases with department heads to follow up on the progress their employees are making.
